Wall Street Banks Walking Away From Under Water Mortgages: Tells US Public Not To

Originally Posted on TPM--Dec 17, 2009--15:32:06

Photo: Courtesy Bloomberg

Morgan Stanley, long time Wall Street investment house with a history of regulatory fines and fraudulent activity, is walking away from mortgages on 5 San Francisco commercial properties. Morgan Stanley owes $8 billion on the five office buildings purchased at the top of the market in 2007 in the highly overpriced real estate market of bubble central, California. This latest Morgan Stanley act of borrower irresponsibility is in addition to a walk away default on a $6.5 billion 17 million square feet of office buildings to Barclays Capital. The reason: The mortgages are 50% underwater.

According to Bloomberg:

Morgan Stanley to Give Up 5 San Francisco Towers Bought at Peak

Alyson Barnes a Morgan Stanley spokeswoman, said yesterday, "This isn't a default or foreclosure situation. We are going to give them the properties to get out of the loan obligation."

Morgan Stanley: TARP Bailout-ee
Morgan Stanley bled US tax payers for $10 billion in TARP money in 2008. Morgan Stanley, like the infamous Goldman Sachs, are hedge funds that bellied up to the Fed's deposit bank discount window by fraudulently claiming to be deposit banks. The Fed approved the regulatory change September 21, 2008, for "Friends of Hank Paulson and Lloyd "Doin' God's Work" Blankfein" while denying the same status to Goldman competitor Lehman Brothers.

Wall Street has tried to lay the blame for the financial fiasco of securitization and Wall Street MBS fraud continually on "irresponsible people who took out mortgages they could not afford."
The hypocrisy of Wall Street banks shirking their loan obligations and walking away simply "to get out of the loan obligation" is undeniable to anyone, even the tone deaf Obama administration's "No Wall Street banker Left Behind" crowd.
According to Bloomberg:

The firm last month agreed to surrender 17 million square feet of office buildings to Barclays Capital after acquiring them for $6.5 billion in 2007 from Crescent Real Estate Equities. U.S. commercial real estate prices have dropped 43 percent from October 2007's peak, Moody's Investors Service said last month.

"This isn't a default or foreclosure situation," Barnes said. "We are going to give them the properties to get out of the loan obligation."

Bill at Calculated Risk examines research on strategic defaults among US residential mortgages for the same reason as Morgan Stanley. Their property is worth far less than the loan.

Does Morgan Stanley "Walking Away" From CRE Contribute to Strategic Defaults?

Note that Morgan Stanley is current on the loan and is not in foreclosure. They are simply "walking away" because the buildings are worth less than the amount owed.

And that remains the greatest fear - and it probably doesn't help that companies like Morgan Stanley are walking away from commercial buildings. As the researchers noted, the more people hear about strategic defaults, the more willing they are to walk away. Zingales was quoted in the WSJ earlier this year.

I wonder if hearing about "rich" banks that are paying "large" bonuses walking away from commercial buildings also weakens the social pressure?

The genius investors at Morgan Stanley have lost nearly 50% on the investments, plan to relinquish five San Francisco office buildings to its lender two years after purchasing them. According to Bloomberg, Morgan Stanley year-end bonuses in 2007 were estimated jumped to $9.93 billion from $8.39 billion, about 60 percent of total compensation on the investments down 50% that the Wall Street bank away from.

Morgan Stanley BIG TIME BONUSES for Loser Investors

According to AG Cuomo's investigation of Wall Street banks released July 2009, "Morgan Stanley earned $1.7 billion and paid $4.5 billion in bonuses" in 2008 on these brilliant investments among other activities. According to the UK Telegraph in October 2009:

Morgan Stanley bonus pool hits $3 billion despite 91% drop in profits

Investment bank Morgan Stanley has more than doubled the share of revenues it will hand out in pay and bonuses to its 62,000-strong army of bankers and brokers despite a 91pc drop in profits last quarter.

Morgan Stanley saw a slide in profits from $7.7 billion in the three months to September last year to $757 million in the same period this year.

There seems to be plenty of money at Morgan Stanley to pay everything BUT the mortgage:

2007 Bonus Compensation =    $9.93 billion
2008 Bonus Compensation =    $4.50 billion
2009 Bonus Compensation =    $3.00 billion
  (Oct estimate)

Where do I get a job screwing up royal and not only not get fired... but get a bonus? If I were a teacher and lost half my students, failed or dropped out... would you pay me a bonus or fire me?

Wall Street Can Walk Away America, Not You

While Wall Street shames people to continue "their moral obligation to honor their mortgages and NOT walk away," the incredible hypocrisy of the Wall Street banks, their backers at the Fed and the Obama administration are becoming glaringly obvious.

One set of rules for the financial oligarchy and the politicians and regulators they buy, another set of rules for the American public they fleece.

Obama's Wall Street no reform "Reform" -- "No Wall Street Banker Left Behind."



What say you Mr. Change? Now that is Hypocrisy you can believe in.